Morses Club

Morses Club, the UK’s second largest home collected credit lender with a 130-year track record, is now being expanded to include online lending, revolving credit and mobile wallet. Its operations and footprint are not dissimilar to the highly successful Provident Financial Group. Despite performing satisfactorily since last May’s IPO, given the quality of management and visibility offered, a 2016/17 P/E multiple of just 10.3x along with a 5.7% yield (compared with Provident’s 2016E of 17.5x and 4.3%) suggests it remains something of a bargain. The argument is strengthened further by two additional factors, (i) Quite extraordinarily, Provident’s Consumer Credit Division’s operation is 440% geared, compared with 130% for Morse, suggesting that the latter retains the opportunity to gear-up its prudently managed balance sheet and, (ii) Operating in a highly fragments environment that is rapidly consolidating amid regulatory pressure, Morse is seeing numerous accretive acquisitions available at 70% of gross book that are big enough ‘to make a difference’. The UK Home Collected Credit (‘HCC’) market is long-term and will remain for decades to come. Morses’ ongoing efforts to shorten loan duration and so lower impairment continue to bear fruit; moreover, its business area will expand simply and economically to encompass remote collection and online lending next year, followed beyond this by revolving credit and mobile wallet. Throughout the key characteristics of Morses’ business will remain highly predictable growth with highly predictable returns. Buy – 02/09/16

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